Sei sulla pagina 1di 59

Introduction What is inventory management?

Roles and responsibilities of the Inventory Manager Warehouse and inventory operations Inventory valuation How much to order? Economic order quantity Managing and forecasting inventory Inventory Planning Warehouse planning and systems Specialized training in Materials Management

Inventory Management

What is inventory (or stock)?


The stored accumulation of material resources to be used in a transformation process.

What is inventory management?


The way that the accumulation of these materials is optimised so that the business can satisfy its customers demands for the delivery of a required quantity and quality of products at the right time and at the minimum cost to the business.
ITC
M11:U1:1.1-1

Efficient inventory management is important to a company because of its position in the working capital cycle... Cash
received

Debtors or receivables
Distribution & retail Inventories of finished goods Other production resources Work-in-process inventories

Purchase orders

Inventories of raw materials

Other production resources

RIP

Money tied up in inventory is costly dead money. It cannot be used for other more productive purposes... but the need to hold inventory is often unavoidable! ITC

M11:U1:1.2-1

Demand forecast error Unpredictable or late deliveries from suppliers

Consignment stocking Minimisation of delivery costs

Minimum supplier order quantity


Supplier delivery interval Stocking methodology Reorder interval & quantity Strategic stocking Purchase price advantage Lead-times offered to customers are shorter than supplier lead-times
ITC

Pipeline inventory
Anticipation or precautionary stocks
MEETING CHANGING DEMAND WITH FLAT CAPACITY
DEMAND STOCK BUILD SUPPLIER CAPACITY

PULL FORWARD

M11:U1:1.3-1

How much inventory to hold?


Rate of supply of inputs

The water tank model of inventory


Rate of demand of outputs Output process

Inventory
Input process

Inventory

Keep inventory (water in the tank) lower, by:


Keeping the person controlling the input pipe in contact with the person controlling the output pipe... and with the persons knowing the demand for water.
ITC
M11:U1:1.4-1

Loss of sales from delay in supply Loss of goodwill and delayed payment from customers if orders are not delivered in full Higher transportation costs to fill rush orders Disruption of the production process Inefficient production scheduling Purchasing of small volume supplies at high prices to meet shortages Quality or specification differences due to the need to call upon other sources
requisitions that are satisfied on time and in full (OTIF)
ITC
M11:U1:1.5-1

Optimise service levels: the number of orders or

The cost of money tied up in stock Fixed storage costs Variable storage costs

Inventory management costs


Stock deterioration, loss and obsolescence
ITC

M11:U1:1.6-1

What type of inventory to keep? the importance of reducing variety


Materials in

The variety-pipeline funnel

Variety

Finished goods out

A
ITC

B
M11:U1:1.7-1

Optimising inventory levels


Reducing holding costs and parts variety Reaching or surpassing international quality and traceability standards Maximising service levels and inventory turnover while minimising error rates

ITC

M11:U1:1.8-1

Director of Supply Chain Operations

Inventory Manager
External relations with supply chain partners Objectives of inventory management

Unit 1

Internal integration: interaction with other departments

Warehouse & inventory operations Unit 2

Managing & forecasting inventory

Inventory planning

Unit 3

Unit 4

Warehouse planning & systems Unit 5

Workforce Training
Short term operational
ITC

Time Horizon

Long term planning


M11:U1:1.8-2

Records should reflect what is actually in inventory The types of inventory transactions Improving the timeliness of inventory transactions Where materials can be found:
Goods reception areas Inspection areas Reject material space for damaged inventory Warehouse shelf space (storage areas) Kitting or order compilation spaces Workbench bins & around machines Work-in-progress holding areas Assembly lines

Dispatch & loading areas


ITC
M11:U2:2.2-1

Date 1 July 1 August 1 September 1 October 1 November

Received Unit Price $100

Received Quantity (Units) 200

Issued Quantity (Units) 100 60

In Stock Quantity 200 100 40 240 140

$150

200
100

Method 1 - First In First Out (FIFO)


Issues are valued based on the cost of the earliest arrivals The value of stock is calculated from the unit values of the items remaining in stock

How to value this issue?


No. of units issued and unit value 40 units at $100 each 60 units at $150 each 100 units Total value of units issued $4,000 $9,000 $13,000

ITC

No. of units in stock and unit value 140 units at $150 each

Total value of units in stock $21,000

M11:U2:2.3-1

Date 1 July 1 August 1 September 1 October 1 November

Received Unit Price $100

Received Quantity (Units) 200

Issued Quantity (Units) 100 60

In Stock Quantity 200 100 40 240 140

$150

200
100

Method 2 - Last In First Out (LIFO)

Issues are valued based on the cost of the latest arrivals No. of units issued

How to value this issue?

Total value of and unit value units issued 100 units at $150 each $15,000

The value of stock is calculated from the No. of units in stock Total value of unit values of the items remaining in stock and unit value units in stock

ITC

40 units at $100 each 100 units at $150 each 140 units

$4,000 $15,000 $19,000

M11:U2:2.3-2

Date 1 July 1 August 1 September 1 October 1 November

Received Unit Price $100

Received Quantity (Units) 200

Issued Quantity (Units) 100 60

In Stock Quantity 200 100 40 240 140

$150

200
100

The value of stock is calculated from weighting the average values of the items in stock

Method 3 - Weighted Average Costing (WAC)

How to value this issue?

Before issue:
No. of units in stock Total value of and unit value units in stock 40 units at $100 each $4,000 200 units at $150 each $30,000 Weighted average unit value $34,000 = $34,000 / 240 units = $141.67

Issues are valued based on the cost of this weighted average value No. of units issued Total value of and unit value units issued 100 units at $141.67 $14,167

After issue:
No. of units in stock Total value of and unit value units in stock 140 units at $141.67 $19,834

ITC

M11:U2:2.3-3

Date 1 July 1 August 1 September 1 October 1 November

Received Unit Price Rs100

Received Quantity (Units) 200

Issued Quantity (Units) 100 60

In Stock Quantity 200 100 40 240 140

Rs150

200
100

Method 4 - Standard Costing


The value of stock is calculated from applying a standard cost to the item (e.g., in our example: Rs130)

How to value this issue?


Issues are valued based on the same unit standard cost

No. of units in stock Total value of and standard value units in stock 140 units at rs130 each Rs18,200

No. of units issued Total value of and standard value units issued 100 units at Rs130 each Rs13,000

Method 5 - Replacement Costing


Similar to above, but uses replacement cost instead of standard cost to better reflect the market value (e.g., Rs160)
ITC
M11:U2:2.3-4

The inventory value will affect the companys profit & loss account
Turnover (sales): Cost of sales:
$10,000

If prices are rising or falling over time, each method will calculate the values of inventory issued and in store differently

Opening inventory

Rs3,000 Rs5,000 Rs8,000

+
-

Net purchased

Closing inventory

Rs2,000
Rs6,000
(Rs6,000) Rs4,000

Operating profit:

You should verify that the same valuation method has been employed before comparing unit costs or inventory values
ITC
M11:U2:2.3-5

Action Point

2.3-1

Applying the different methods of inventory valuation


Based on the following table (assuming inventory on 31 December of the previous year was zero)...
Date
January February March April May June July Received Unit Price $90 Received Quantity (Units) 300 Issued Quantity (Units) 50 100 110 90 80 170 160 In Stock Quantity 250 150 640 550 470 500 340

$80

600

$120

200

Inventory valuation method 1. 2. 3. 4. 5. First in First out (FIFO) Last in First out (LIFO) Weighted Average Costing (WAC) Standard Costing ($100) Replacement Costing ($110)

Value of the issue in July

Unit value of the remaining stock in July

ITC

M11:U2:2.3-6

Receipt of stock
Notification of goods receipt Storage/ put away Receipt of copy of purchase order

Inspection

Acknowledgement

Unloading Delivery
ITC

Schedule/plan delivery

M11:U2:2.4-1

Issue of stock
j ljdj ljk d jkds jj ljkd sljsd dljkdljd s djk ljdjj ljk sljsd ljk d jkds l d djk sljs

Cost allocation
350

14,

Adjustment of stock records

User determines requirement

Delivery/ collection

Requisition authorised

Picking Identification of the goods


ITC

Presented to stores

AZ-053.28

M11:U2:2.4-3

Re-order level systems Periodic review systems

Demand-driven lean supply systems (e.g., Just-in-time):


The
frequency & quantity of orders is driven by demand data passed on directly to suppliers and

Very small or non-existent inbound inventory stores Requires smooth production process, short lead-times
supplier-guaranteed quality
ITC

M11:U2:2.5-1

charting the variations in inventory levels over time


Demand (D) over period Slope = demand rate (steady & predictable) Order quantit y Q Average inventory = Q/2

Simplified inventory profile:

Time interval = Q/D Time t Instantaneous deliveries at a rate of D/Q per period

ITC

M11:U2:2.6-3

Re-order level systems - formula:

ROL = (R d x L) + S
Where...

Re-order level (ROL) =


Demand in the lead-time

Safety stock (S)

Demand in the lead-time =


Rate of demand/usage (Rd)
(e.g., per week)

x Lead-time (L)
ITC

(e.g., in weeks)
M11:U2:2.5-2

Basic re-order level stock replenishment system


(fixed quantity, variable interval)

Quantity

Fixed order quantity


Slope = Rd

Re-order level

Re-order

Re-order

Re-order

Safety stock

Lead-time Time

ITC

M11:U2:2.5-3

Action Point

2.5-1

Re-order level
Given the following data, what is the re-order level:

Safety stock = 100 units


Supply lead-time = 6 weeks Average weekly demand = 200 units

ITC

M11:U2:2.5-4

Periodic review stock replenishment system


(fixed interval, variable quantity)
Periodic reviews Quantity
Variable order quantities

A
Lead-time

C
Lead-time

D
Lead-time

Safety stock

{
Z
Fixed review interval Lead-time Time

ITC

M11:U2:2.5-5

- formula to calculate the order size:

Periodic review systems

Order size =
(Demand over the review interval

the lead-time)

(Actual stock)

(Pipeline stock)
stock)

+(Safety

In a periodic review system, the basis for determining the order size (which varies each time) is therefore the (fixed) review interval.
ITC
M11:U2:2.5-6

Action Point
Re-order quantity
Given the following data, what quantity should be re-ordered? Expected demand per week = 100 Lead time = 3 weeks Review interval = 4 weeks Safety stock = 300 Physical stock = 450 On order (pipeline) = 200 ORDER QUANTITY =

2.5-2

Periodic reviews
Lead-time Lead-time

Lead-time

What should the next order quantity be? Safety Stock

{
Review interval Lead-time
M11:U2:2.5-7

ITC

Re-order level system


1. Determine the (fixed) most economic order quantity (EOQ) 2. Determine when to place the fixed order each time (i.e., the re-order level), based on your desired level of safety stock

Periodic review system


1. Determine broadly the overall level of the most economic order quantity 2. Based on this,fix the review interval,

ITC

3. Then, for each order, determine the specific order quantity, based on your desired levels of maximum & safety stock

M11:U2:2.6-2

Cost of placing the order Price discount costs Stock-out costs Working capital costs of inventory Storage costs Obsolescence costs Production inefficiency costs
ITC
M11:U2:2.6-1

Ordering costs

Two alternative inventory plans with different order quantities (Q)


Plan A Demand (D) = 1000 items per year Q = 400 Average inventory for Plan A = 200 Plan B Q = 100 Average inventory for Plan B = 50 0.4 yr Time
M11:U2:2.6-4

400 Inventory level 100


ITC

0.1 yr

Working capital costs: The cost of borrowing


the money needed to pay for one unit of stock.

Storage costs: Rent, heat, light per m2


occupied by one unit of stock. disposed of in a period, apportioned over each unit stored in the period.

Obsolescence risk costs: Cost of the stock

Holding costs (H) = (P) x (i) x (Q/2)


In which:

= Unit purchase costs (i.e., price plus transport and other delivery costs) = Inventory carrying cost (expressed as a percentage of = Average inventory (the order quantity divided by 2)
M11:U2:2.6-5

i
Q/2
ITC

P)

Ordering costs

Administrative costs of placing the order

Communications costs (with suppliers,


transporters, etc.)

Ordering costs (O) = (C0 ) x (D/Q)


In which:

Co D/Q

= Cost per order = The number of orders in the period (i.e., the demand divided by the order quantity)
M11:U2:2.6-6

ITC

So...

Total cost =

Pi Q + Co D 2 Q

Costs of adopting plans with different order quantities


Order quantity Holding costs

(Q)
50 100 150 200 250 300 350 400

Pi Q/2
25 50 75 100 125 150 175 200

Ordering costs

Co D/Q
400 200 134 100 80 66 58 50

Total costs
425 250 209 200* 205 216 233 250

Demand (D) = 1,000 units


Unit purchase cost (P) = $5 Inventory carrying cost (i) = 20%
ITC

* Minimum total cost

Cost per order (Co) = $20

M11:U2:2.6-7

Graphical representation of the Economic Order Quantity (EOQ)


400 350

Cost ($)

300
Total cost

250 200 150 100 50 0


Ordering costs Holding costs

200

400

Order quantity

EOQ =
ITC

2 Co D

Pi

Co = Cost per order D = Demand over the period P = Purchase cost per unit i = Inventory carrying cost

M11:U2:2.6-8

Some assumptions of the EOQ


Demand over the period (e.g., a year) is given, and remains unchanged Price, including transport cost, does not change with order size and remains constant throughout the year Order processing costs and stock holding costs are traceable,and remain constant Lead-time is zero, or accurately predictable, and does not vary (there are no delays)
ITC
M11:U2:2.6-9

Action Point

2.6-1

Calculating the EOQ


A company purchases material for its production line at $650 per MT. Its yearly requirement is 288 MT. Inventory carrying costs are calculated at 25% of the average value of inventory, and the cost of placing each order has been set at $50.
Calculate the EOQ

ITC

M11:U2:2.6-10

Inventory profile for gradual replacement of inventory


Q
Slope =

M
Slope = Rd
Extreme case: Just-in-time deliveries, where Rs = Rd and no inventory accumulates

Rs - Rd

Q/Rs
Rd Q = = =

Time
The rate of demand (e.g., in units per week) The order quantity The rate of supply under the order (e.g., in units per week) The period over which each order is delivered

Rs

Q/R s = Rs - R d = M
ITC

The rate at which inventory build-up takes place while supplies are being delivered The maximum level of inventory reached

M11:U2:2.6-13

EOQ under conditions of continuous replenishment of inventory


2 Co D EOQ =
Rd Pi (1 ) Rs

As before...

Co = Cost per order D = Demand over the period P = Purchase cost per unit i = Inventory carrying cost
ITC
M11:U2:2.6-14

Action Point

2.6-3

Calculating the EOQ when inventory is replaced gradually


The same company that we looked at in Action Point 2.-1 has now arranged for its supplier to deliver the orders it places at a rate of 8 MT per week, rather than in single lots. As before the purchase cost is $650 per MT and the companys yearly requirement is 288MT. Inventory carrying costs each year ar 25% of the average value of inventory, and the cost of placing each order is $50.
Calculate the EOQ under these new circumstances.

ITC

M11:U2:2.6-15

Action Point

2.6-3 (Contd)

Compare the yearly inventory holding costs in both cases. How much will be saved per year under this new arrangement?

Compare the yearly ordering costs in both cases. How much will be saved per year under this new arrangement?

ITC

M11:U2:2.6-16

Composite lead-time
Buyers internal lead-time Suppliers lead-time Logistics delivery lead-time

Long leadtimes

Lead-time can be managed - a crucial, but often neglected aspect of inventory control Direct and frank communications with supplier/customer production managers Resource planning systems integrated throughout the supply chain across a communications network like the Internet Not reactive, but Proactive lead-time monitoring & reduction techniques
M11:U3:3.2-1

?
ITC

increase supply uncertainty

and cause high safety stock costs

The Supply Chain


CONSUMERS RETAILER DISTRIBUTOR FACTORY WAREHOUSE

ORDERS GOODS
FACTORY

The Forrester effect


M11:U3:3.2-1M11:U3:3.2-1

2. Orders from retailers to 3. Orders from distributors distributors to 4. Orders factory from factory 1. Increase of 10% warehouse warehouse to in orders from factory consumers to retailers

ORDERS

TIME
ITC
M11:U3:3.2-2

Explaining the Forrester effect


Forrester showed how this lagged or delayed response leads to an amplification in response magnitude, resulting in supply chain instability and increased inventory levels.
ORDERS
Lagged (delayed) response Amplification of response System instability

TIME
ITC
M11:U3:3.2-3

Line of balance (LOB) supplier monitoring

Vendor managed inventory (VMI)


EDI (Electronic Data Interchange) Business process re-engineering (BPR) Industry & government initiatives

ITC

M11:U3:3.2-10

Example of Line of Balance (LOB):


the suit manufacturer
Receive buttons

Delivery schedule

Stages
1
Order fabric

3 2 4
Cut & stitch

Week 6 Week 8 Week 12 1 wk 1 wk

400 300 200

Lead-time = 3 wks

Receive fabric

Dispatch

1 wk

Suits delivered

ITC

M11:U3:3.2-11

Example of Line of Balance (LOB)


LOB to end of Week 6
Delivery schedule
Week 6 Week 8 Week 12 1 wk 400 300 200

Stages
1
400 0 300 0 0 0 200 1000 900 800 700 600 500 400 300 200 100 0
ITC

3 2
400 0 300 0

Lead-time = 3 wks

4
400 0 300

1 wk

5
400 0

1 wk

6
400

LOB
900 700

= actual accumulated quantity by end of Week 6


400

M11:U3:3.2-12

Inventory Categorisation Techniques

A powerful tool for maximising order service levels and for optimising safety stocks and normal inventory levels is essential to prioritise management time, disaster recovery plans and calculate insurance cover requirements

ITC

M11:U4:4.3-1

The technique enables individual minimum/maximum levels of inventory to be easily determined by classifying inventory into three categories

ITC

M11:U4:4.3-2

Calculating the average usage value of purchased items


Item. No 1 2 3 4 5 6 Average usage per week 3 2.5 20 X Unit value (price) $ 2.5 $ 1 $ 5 = Average usage value per week $ 7.5 $ 2.5 $ 100

175
1 15

$ 2
$ 10 $ 2

$ 350
$ 10 $ 30

ITC

M11:U4:4.3-3

Ranking and ABC classification of purchase items

Item No. 4 3 6 5 1 2

Weekly Usage Value $ 350 $ 100 $ 30 $ 10 $ 7.5 $ 2.5

Cumulative Percentage percentage Total Cumulative of total ABC value Usage of total usage classification usage ranking Value value value 1 2 3 4 5 6 $ 350 $ 450 $ 480 $ 490 $ 497.5 $ 500 70 % 20 % 6% 2% 1.5 % 0.5 % 70 % 90 % 96 % 98 % 99.5 % 100 % A B C C C C

ITC

M11:U4:4.3-4

Paretos 80/20 rule


100%

80%
Vilfredo Pareto

Cumulative annual purchase expenditure

20%
ITC

100%

No.of purchased items

M11:U4:4.3-5

Class parts are the significant few 6070% of your companies total purchasing spend but only around 10-15% of the total number of items in stock. Critical items that need tight control

Valuable Class A parts are reviewed frequently because inventory cover is low due to their high individual part value
ITC
M11:U4:4.3-6

C Class

parts are the trivial many 10-15% of your companies total purchasing spend but more than 60-70% of the total number of items in stock. Higher volume deliveries reduce administrative costs. Often stock control is limited to bin systems.
M11:U4:4.3-7

ITC

A C

B Class

parts fall between A and C class parts in terms of both inventory levels and effort/systems used to manage the parts. They usually range from 20-30% of both expenditure and the number of items in stock.
M11:U4:4.3-8

ITC

Action Point
A-B-C Analysis
Item No. 1 2 3 4 5 6 7 8 9 10 11 12 13
ITC

4.3-1

Complete the table showing the average (weekly) usage values.


Average usage per week 3 90 2 1 1 20 6 14 150 2 2 15 1 Unit value (price) $3 $4 $4 $ 10 $2 $4 $5 $5 $2 $3 $1 $6 $2
M11:U4:4.3-9

Average usage value per week

Action Point
as class A, B or C.

4.3-1 (Contd)

A-B-C Analysis Now rank these items and complete the table, classifying them
Cumulative Percentage percentage Cumulative of total ABC Usage of total usage classification usage Value value value

Item No.

Weekly Usage Value

Total value ranking 1 2 3 4 5 6 7 8 9 10 11 12 13

ITC

M11:U4:4.3-10

A-B-C revision

A Class parts will have the lowest level of inventory cover


These tend to be important parts

Very tight controls need to be in place


Parts are reviewed very regularly Ensure that potential stock-outs are avoided

For A class parts we maintain high service levels by allocating more effort and better systems, rather than high inventory levels
ITC
M11:U4:4.3-11

A-B-C revision

C Class parts are the opposite of A Class parts


Trivial parts High levels of inventory cover Enables reductions to be made to the time spent managing these parts Large delivery quantities

ITC

M11:U4:4.3-12

Example of ABC rules

Class A B C

Delivery interval 4 weeks 8 weeks 12 weeks

Safety stock 3 weeks 4 weeks 8 weeks

ITC

M11:U4:4.3-13

Potrebbero piacerti anche